When a customer of operator X calls a customer of operator Y, the call is terminated on operator Y�s network and operator Y normally charges operator X a �termination rate� (which is eventually passed on to the caller). In its 2004 review of this market (which is identified in the European Commission�s Recommendation on Relevant Product and Service Markets within the electronic communications sector susceptible to ex ante regulation as the market for �call termination on individual public telephone networks provided at a fixed location�), RegTP identified 54 separate operators active in this sector in Germany (Deutsche Telekom and another 53 alternative network operators) with each of their networks being a separate �relevant market for call termination�. It also found that each operator has 100% market share on its respective network.

However, whilst RegTP designated Deutsche Telekom as having Significant Market Power (SMP) on the market for call termination on its network (which means it will be subject to ex-ante regulation set by RegTP), it concluded that the other operators do not have SMP for call termination on their respective networks, despite them having a 100% share of the market (and consequentially they would have remained free to set their termination charges as they saw fit). The German regulator reached this conclusion as it was of the opinion that Deutsche Telekom has countervailing buyer power which does not allow the alternative network operators to behave to an appreciable extent independently of its competitors and customers when setting their call termination charges. In other words, the German regulator was of the opinion that Deutsche Telekom can exert enough pressure when it negotiates with the other operators so that they cannot set their termination charges above a competitive level.

Pursuant to Article 7 of the Framework Directive, the German regulator notified its findings to the EU Commission which disagreed with the regulator and has now vetoed its decision. In the Commission�s opinion, since Deutsche Telekom is obligated to buy termination services from each of the alternative network providers (pursuant to the interconnection obligations set out in accordance with Article 5 of the Access Directive) and since its own termination rates are subject to ex-ante regulation, the German incumbent does not have much leverage in any negotiations with the other operators over their call termination rates. This view taken by the EU Commission is similar to the one taken by other National Regulatory Authorities (NRAs) in the EU (such as those in the UK, Ireland, Austria, Finland, Sweden).

The outcome of the Commission�s veto is that the German regulator is required to withdraw its draft measures as regards the 53 markets controlled by the alternative network operators and carry out a new analysis of these markets, which is expected to eventually see the imposition of certain regulatory controls on the call termination charges of these operators. This does not mean, however, that the alternative network operators will be subject to the same regulatory controls set on Deutsche Telekom�s call termination charges. Under the EU regulatory framework for electronic communications the NRA�s enjoy a wide discretion with regards to the regulatory remedies they can impose on operators designated as having SMP, and other NRAs have indeed imposed lighter regulation on the alternative network operators than on the incumbent operators.

Amit Rainhartz